What are the VAT rules for selling goods online in the UK?

Understanding VAT when you sell goods online in the UK

Value Added Tax (VAT) is one of the most important compliance topics for anyone selling physical products online in the UK. It affects pricing, margins, cashflow, and the way you present information to customers. The VAT rules can feel complicated because they depend on who you are selling to, where your customers are located, where the goods are at the point of sale, and whether you sell through your own website or a marketplace. There are also different rules for UK domestic sales, sales to Northern Ireland, exports outside the UK, and sales to the EU. On top of that, special schemes and exceptions can apply to small businesses, second-hand goods, and specific product categories.

This article explains the VAT rules that typically apply to selling goods online in the UK. It focuses on practical situations that online retailers face, such as when you must register for VAT, how VAT works on domestic UK sales, what changes when you sell abroad, how VAT interacts with shipping and import duties, and what your invoicing and record-keeping responsibilities look like in real life.

When do you need to register for VAT?

The starting point for VAT is whether you are required to register. If you run a business that makes taxable supplies in the UK, you generally must register for VAT if your taxable turnover exceeds the VAT registration threshold over a rolling 12-month period. Taxable turnover includes standard-rated, reduced-rated, and zero-rated sales, but not exempt supplies. Many online sellers misunderstand zero-rated goods and assume they do not “count” toward the threshold. In most cases, they do count, because they are still taxable supplies even though the VAT rate is 0%.

VAT registration can also become necessary in other scenarios even if you are below the threshold. For example, if you take over a VAT-registered business, if you expect to exceed the threshold in the next 30 days alone (the “future turnover” test), or if you are a non-UK business selling goods in the UK with stock located in the UK, you may have VAT obligations regardless of turnover thresholds.

You can also register voluntarily. Many online sellers do this to reclaim VAT on costs (such as inventory purchases, packaging, website services, photography, and advertising) and to appear more established to trade customers. However, voluntary registration also means ongoing admin: VAT returns, digital record-keeping requirements, and the need to handle VAT correctly on all sales. The decision often depends on your customer mix. If most customers are consumers who cannot reclaim VAT, becoming VAT registered usually increases your VAT-inclusive prices unless you reduce your net margin. If most customers are VAT-registered businesses, VAT registration may be less price-sensitive because those customers can often reclaim VAT.

What counts as a “taxable supply” for online goods sellers?

Most sales of physical goods by an online retailer are taxable supplies. The VAT rate depends on what you sell. Many everyday consumer goods are standard-rated. Some items fall under the reduced rate, and certain goods may be zero-rated. The product’s VAT liability matters because it determines how much VAT you charge, how you report sales on your VAT return, and how you price goods on your website.

VAT on goods is not based on whether you sell “online” or “offline.” Online selling mostly changes the practicalities: how you display prices, how you collect evidence of a customer’s location, how you manage returns, and how you deal with cross-border shipping and marketplaces. The core concept remains the same: if you are VAT registered and you make a taxable supply in the UK, you normally must account for VAT at the correct rate, unless a special cross-border or zero-rating rule applies.

Charging VAT on UK domestic online sales

For most online retailers selling to customers in Great Britain (England, Scotland, and Wales), domestic VAT works in a straightforward way. If you are VAT registered, you charge VAT at the appropriate rate on the selling price of the goods. If you advertise prices to consumers, you generally show VAT-inclusive pricing. If you advertise prices to business customers, you can show VAT-exclusive pricing, but you must be clear and not misleading. Many online sellers serve both consumers and businesses, so a common approach is to show VAT-inclusive prices by default and offer VAT breakdowns at checkout or on invoices.

VAT is usually accounted for based on the “tax point” (also called the time of supply). For online retail sales, the tax point often aligns with the date you receive payment or the date you issue a VAT invoice, depending on the circumstances. In many e-commerce systems, VAT accounting is triggered by the order payment date, but there can be exceptions if you issue invoices later, take deposits, or run subscription-like arrangements for goods. Ensuring your accounting system matches your actual business process is vital because VAT is time-sensitive: it determines which VAT return includes the sale.

Another practical issue is shipping. If you charge a separate delivery fee, that fee is usually treated as part of the same supply and takes the VAT rate of the goods. If you sell a mixture of goods with different VAT rates in one order, delivery VAT can become more complex, and you may need to apportion the delivery charge. Many sellers choose simplified shipping pricing to avoid complicated apportionment rules, but your approach should be consistent and defensible.

VAT on selling through online marketplaces

Selling through marketplaces introduces additional VAT considerations because marketplaces may be involved in collecting payments, presenting prices, and sometimes even being treated as the “deemed supplier” for VAT purposes in specific situations. The key practical takeaway is that you cannot assume VAT is handled automatically just because you sell on a platform. You must understand whether you or the marketplace is responsible for accounting for VAT on each type of sale.

From an operational standpoint, you should align three things: the VAT treatment you apply, the VAT information shown to the customer, and the data that flows into your bookkeeping from the platform. Mistakes often happen when sellers treat marketplace settlement reports as if they were sales invoices, or when they fail to reconcile platform fees and commissions (which themselves can have VAT implications) separately from the VAT on the underlying goods sold.

If you sell through your own website and through marketplaces, you should ensure your VAT settings are consistent across channels. Price parity can be tricky: marketplace fees may pressure margins, and VAT-inclusive pricing can make those pressures more visible. A disciplined approach is to calculate net selling price, add VAT where required, then assess whether the VAT-inclusive total is commercially viable in each channel.

VAT and product pricing: gross vs net, and consumer transparency

VAT affects your pricing decisions because the customer sees the total price while you think in net revenue and VAT payable. If your customer is a consumer, VAT is a cost to them and part of the displayed price. If you are VAT registered and sell mainly to consumers, you need to decide whether your advertised price is VAT-inclusive. In UK consumer retail, it usually is. That means if you want to sell a product for a specific consumer-facing price, you work backward: divide the gross price by (1 + VAT rate) to find your net revenue and VAT portion.

Pricing gets more complicated with promotions and discount codes. VAT is generally calculated on the discounted price actually paid, not the original list price. Free gifts can trigger VAT issues if they are linked to a purchase and represent a supply for consideration. Bundles can create VAT allocation issues when items in a bundle have different VAT liabilities. It is often safer to structure bundles with clear line items or rules that determine how consideration is allocated among components. If you do not allocate correctly, you can end up either underpaying VAT (risking assessments and penalties) or overpaying VAT (hurting your margin).

Returns and refunds are another area that affects VAT. If you refund a customer, you generally adjust VAT accordingly. Your e-commerce and accounting systems should reflect refunded VAT so your VAT return matches economic reality. This is especially important if you process partial refunds, exchanges, or returns with restocking fees, because the VAT treatment should match the amount kept or repaid.

VAT on importing goods into the UK for online sale

Many online sellers source inventory from overseas. If you import goods into the UK, import VAT and customs duty may apply at the border. Import VAT is different from VAT on sales. It is a tax on bringing goods into the UK, usually paid at the time of import unless you have arrangements that allow you to account for it differently. For a VAT-registered business, import VAT is often recoverable as input tax (subject to normal rules), but the timing matters. Paying import VAT up front can create cashflow pressure because you pay the tax before you have sold the goods.

Where the goods enter the UK, the importer of record, and the Incoterms (the shipping terms that define who is responsible for import formalities and taxes) all influence VAT outcomes. If you buy goods on terms where the supplier handles delivery to your door including import clearance, you might not see import VAT separately, but it can still be embedded in the cost. If you import yourself, you will typically need evidence to reclaim import VAT (where reclaimable) and to demonstrate the value and classification of goods. Getting classification and valuation right is important because it affects duty and VAT. Misclassification can lead to delays, unexpected charges, and compliance issues.

When you price your products, remember that import VAT is not the same as VAT you charge to customers. Import VAT may be recoverable, but duty generally is a cost. Also, shipping and handling fees may be part of the customs value used to calculate import charges, depending on the circumstances. A clear landed-cost model helps you avoid pricing surprises and ensures you understand your true margin before you scale advertising or marketplace fees.

VAT when exporting goods outside the UK

If you sell goods online to customers outside the UK and the goods are shipped out of the UK, you may be able to zero-rate the sale for UK VAT. Zero-rating means you charge VAT at 0%, but the sale is still taxable, and you may reclaim input VAT on costs related to those sales. The key condition is usually that the goods actually leave the UK, and you must keep evidence of export to support zero-rating. In practice, this means maintaining shipping documentation, courier tracking, customs export records where relevant, and an audit trail linking the order to the dispatch and delivery information.

Exports can be to consumers or businesses, but the operational issues often look similar. The customer may face import VAT, duty, and handling fees in their own country. Whether your customer pays those charges on delivery or you collect them upfront depends on how you structure shipping and delivery. If you charge customers for delivery and you are zero-rating the export sale, you usually treat the delivery charge consistently with the VAT treatment of the goods.

A frequent mistake is assuming every overseas sale is automatically outside the scope of UK VAT. That is not always true. The VAT treatment depends on where the goods are located at the time of sale and where they are delivered. If goods are in the UK and shipped abroad, exports may be zero-rated if conditions are met. But if goods are already stored in another country (for example, held in an overseas fulfilment warehouse), then UK export rules might not be the right framework at all, and you may need to consider local VAT rules in that country.

Northern Ireland: special considerations for goods

Northern Ireland has special VAT rules for goods due to its unique position in relation to EU VAT on goods. Online sellers must pay attention to whether goods are shipped to or from Northern Ireland, and whether they are shipping goods between Northern Ireland and Great Britain, or between Northern Ireland and EU member states. The practical effect is that some movements of goods involving Northern Ireland can be treated differently from movements involving Great Britain.

For online sellers, this matters in checkout settings, delivery zones, and your evidence of where the customer is. If you ship goods to Northern Ireland, ensure your e-commerce platform and accounting setup can handle the correct treatment. Mistakes tend to happen when sellers treat Northern Ireland exactly like Great Britain for all VAT purposes, or when they do not capture the information needed to determine which rules apply. Because these rules can affect whether a sale is treated as domestic, intra-EU-like for goods, or an export/import style transaction, you should build clear internal processes around Northern Ireland shipments.

Sales to the EU: distance selling, imports, and customer experience

Selling goods online from the UK to customers in the EU involves considering whether the goods are exported from the UK and then imported into the EU. In many cases, UK sellers dispatching from Great Britain to EU consumers treat the sale as an export for UK VAT purposes and therefore apply a zero rate, provided they hold evidence of export. The customer then faces import VAT and possibly customs duties in the EU country of destination, unless you have set up a delivery model where you handle these charges on their behalf.

From a customer-experience perspective, unexpected charges at delivery are one of the fastest ways to increase returns and chargebacks. Many online retailers address this by offering a delivered-duty-paid style service where the customer pays all taxes upfront. Doing this well requires coordination with couriers and customs processes. It can also have VAT implications because the amounts collected and the way you structure the transaction can change the tax analysis.

Another major factor is where your stock is held. If you store goods in the EU to deliver faster, your VAT obligations can shift toward local VAT registrations and local VAT charging. Using EU fulfilment networks can simplify shipping times but complicate VAT compliance. Before placing inventory in an EU warehouse, consider whether you will create ongoing VAT registration requirements and reporting obligations in that country. This is a strategic decision, not just an operational one.

B2C vs B2B: does it matter for goods?

For goods sold within the UK, the difference between business-to-consumer (B2C) and business-to-business (B2B) is less about the VAT mechanism and more about invoicing, pricing display, and customer expectations. A UK VAT-registered seller usually charges VAT on UK domestic sales regardless of whether the buyer is a business or a consumer, unless the goods are zero-rated or reduced-rated. The business buyer may be able to reclaim VAT, but you still charge it and account for it.

Where B2B vs B2C becomes more complex is in cross-border situations, especially involving Northern Ireland and the EU, or where goods are moved between countries with different VAT systems and reporting requirements. In some contexts, the buyer’s VAT registration status can influence how VAT is accounted for, what evidence you need, and how the transaction is reported. If you sell to international business customers, it is important to collect reliable information about their business identity and, where relevant, VAT identification.

Even if your main customers are consumers, you may still have occasional trade buyers. A clear policy helps: do you issue VAT invoices automatically? Do you require businesses to enter company details at checkout? Do you provide VAT breakdowns on receipts? Clear answers reduce admin workload and reduce the risk of issuing inconsistent documentation that confuses customers and complicates your accounts.

VAT invoices, receipts, and what customers need

If you are VAT registered, you may need to issue VAT invoices in certain circumstances, especially when selling to business customers who need them to reclaim VAT. In many consumer transactions, a VAT invoice is not always requested, but you should be able to provide one. Your invoices should show the required details, including your VAT number, invoice date, description of goods, VAT rate, net amount, VAT amount, and gross total. For online sales, the invoice is often generated automatically and emailed to the customer.

Be careful with simplified invoices. Simplified invoices are allowed in limited cases and typically require fewer details, but they are not suitable for all transactions. Many online sellers prefer full VAT invoices because they reduce ambiguity and support both consumer and business needs.

Also consider how you handle credit notes for refunds. If you issue a credit note, it should refer back to the original invoice and show the adjustment to VAT. Even if you do not send formal credit notes to consumers, your internal records must correctly reflect the VAT adjustment so your VAT returns remain accurate.

Digital record-keeping and VAT returns

VAT compliance is not only about charging the right amount; it is also about keeping the right records and submitting accurate VAT returns. Online selling produces a lot of data: orders, refunds, shipping charges, platform fees, payment processor charges, and sometimes multi-currency amounts. The challenge is to ensure that your VAT reporting is built on reliable data and that you can explain how figures were derived if you are ever asked.

Many businesses use accounting software integrated with their e-commerce platform. Integration is helpful, but it does not guarantee VAT correctness. You still need to verify tax settings, product VAT categories, shipping VAT rules, and how refunds and chargebacks are treated. Payment processors may settle in a way that mixes fees and sales receipts, and marketplaces may deduct commissions before paying you. VAT returns typically require gross sales and output VAT, not just the net payout you receive. If you base your VAT on payouts, you are likely to understate sales and misreport VAT.

It is also important to reconcile VAT by period. For example, if orders are placed at the end of a VAT quarter but shipped later, your tax point rules determine when VAT is due. If your systems treat shipment date as the tax point but you actually create a tax point at payment date, you can end up with timing differences that accumulate and create confusing discrepancies.

VAT on promotions, vouchers, and gift cards

Online sellers often use vouchers, discount codes, and gift cards to drive sales. These tools can have VAT implications depending on how they are structured. A simple percentage discount code typically reduces the price paid, and VAT is calculated on the reduced amount. But vouchers and gift cards can be more complex because the VAT point can occur when the voucher is sold or when it is redeemed, depending on the type of voucher and how it can be used.

From a practical standpoint, you should ensure your e-commerce platform treats these correctly in the VAT breakdown. Misconfigured voucher settings can lead to incorrect VAT calculations, especially if vouchers are applied to orders containing a mixture of VAT rates. If you sell gift cards, be careful about how revenue is recognized and how VAT is triggered. Your accounting approach should align with the VAT treatment so you do not accidentally pay VAT too early or too late.

Mixed-rate baskets and bundles

Many online retailers sell products that do not all have the same VAT rate. When customers buy multiple items in a single order, the VAT calculation is usually straightforward if each line item has the correct VAT rate and the checkout system computes VAT line by line. Complications arise when you apply an order-level discount or charge a single shipping fee for mixed-rate goods. In those cases, you may need to apportion the discount and shipping charge across the items in a reasonable way.

Bundles can be especially tricky. If you sell a bundle for a single price, you must consider whether it is a single supply or multiple supplies, and how to allocate consideration between components if they have different VAT liabilities. The correct approach depends on how the bundle is marketed and what the customer is really buying. Getting this wrong can distort VAT output and create risk if a tax authority challenges your treatment. Many retailers avoid the hardest edge cases by itemizing bundles clearly and ensuring the VAT calculation is transparent at checkout and on invoices.

Second-hand goods and the margin scheme

If you sell second-hand goods, antiques, works of art, or collectors’ items, special VAT schemes may apply. One of the most well-known is the margin scheme, where VAT is calculated on the margin (the difference between your selling price and what you paid), rather than on the full selling price. This can be beneficial for businesses that buy from non-VAT-registered individuals and resell, because there may be no input VAT to reclaim on the purchase in the first place.

However, margin scheme rules can be strict about record-keeping and invoicing. You typically cannot show VAT separately on the invoice in the same way as standard VAT invoices, because the VAT is embedded in the margin. If you sell second-hand goods online, you need to ensure your listing practices and customer documentation align with the scheme’s requirements. This is an area where getting professional advice can pay off, because errors can be expensive and can be difficult to unwind after the fact.

What if you are not VAT registered?

If you are not VAT registered, you do not charge VAT on your sales. That can give you a pricing advantage in consumer markets because your prices are not increased by VAT. But you also cannot reclaim VAT on your costs. Whether being non-registered is beneficial depends on your business model and growth plans. If you are close to the VAT threshold, you should monitor your rolling turnover carefully. Online sales can spike unexpectedly due to a successful promotion, social media exposure, or a marketplace algorithm change. If you exceed the threshold and do not register on time, you can become liable for VAT on past sales, which may come out of your margin if you cannot retrospectively collect VAT from customers.

Even if you are not VAT registered, you still need to think about VAT in your supply chain. Your suppliers may charge you VAT, and that VAT becomes part of your cost. If you import goods, you may pay import VAT that you cannot reclaim. These hidden VAT costs can make your gross margin look better on paper than it really is. A simple way to stay grounded is to track all costs on a VAT-inclusive basis if you are not registered, then assess profitability using the actual cash you spend and receive.

Common VAT mistakes for UK online sellers

Some VAT errors show up repeatedly in e-commerce businesses. One is using marketplace payouts as sales figures, rather than the gross sales value. Another is misclassifying products and applying the wrong VAT rate, often because the seller relies on a category name rather than checking the product’s actual VAT liability. A third is mishandling shipping VAT, especially when orders contain mixed-rate items.

Cross-border mistakes are also common. Sellers may forget to keep export evidence when zero-rating, or they may not understand the implications of storing stock abroad. Another frequent problem is poor handling of refunds and chargebacks, where VAT is not adjusted properly. Finally, many sellers underestimate how much time VAT admin takes, and they do not build processes early enough. That leads to messy records, rushed VAT returns, and avoidable stress.

Practical steps to stay compliant

VAT compliance becomes manageable when you put the right foundations in place. Start by mapping your sales flows. List where your goods are stored, where you ship to, which sales channels you use, and who your customers are. Then align your e-commerce tax settings with that map. Make sure each product has the correct VAT rate, shipping VAT is configured sensibly, and discounts are applied in a way your accounting system can handle.

Next, standardize documentation. Decide when you issue VAT invoices, how you handle credit notes, and how you store export evidence. Build a routine reconciliation process that compares your e-commerce reports, marketplace reports, payment processor reports, and accounting entries. The goal is not perfection on day one, but consistency and traceability. If you can explain how a figure was calculated and you can tie it back to orders and payments, you are in a far stronger position.

Finally, monitor thresholds and changes. Your VAT position can change as you grow, add new markets, or change fulfilment. A small seller shipping only within Great Britain has a simpler VAT profile than a seller using international warehouses, EU fulfilment, or multiple marketplaces. The more your operations expand, the more important it becomes to periodically review VAT treatment and to keep your systems aligned with reality.

Conclusion: VAT is a pricing and process issue, not just a tax return

For online sellers in the UK, VAT rules are part of everyday trading. They influence your checkout experience, your pricing strategy, your customer communications, and your cashflow. The essentials are straightforward: register when required, charge the correct VAT rate on UK taxable sales, keep strong records, and report accurately. The complexity comes from the details: cross-border shipping, Northern Ireland rules, marketplaces, imports, mixed-rate orders, refunds, and special schemes.

If you approach VAT as a process design problem rather than a once-a-quarter tax filing task, it becomes far easier to manage. Solid product setup, clear invoicing and refund procedures, good integrations, and routine reconciliations will prevent most problems. And when you do encounter a complicated scenario, such as selling abroad with overseas stock or dealing with special product categories, addressing it early helps you avoid expensive fixes later. With the right foundations, you can scale your online sales confidently while staying on the right side of UK VAT rules.